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6,362 posts
msg #32521
Ignore TheRumpledOne
7/7/2004 1:59:11 PM

Knight Trading Agrees to Pay
$79 Million to Settle SEC Probe

July 7, 2004 1:16 p.m.

A subsidiary of Knight Trading Group Inc., a top market maker in Nasdaq Stock Market stocks, agreed to pay $79 million in disgorgement and penalties to settle a federal probe of its trading practices, the company said Wednesday.

The Jersey City, N.J., stock and options trader said it expects to take a pretax charge of about $79 million for the settlement, and forecast second-quarter earnings, excluding charges, below analysts' expectations.

The Securities and Exchange Commission in March said it was looking into Knight's trading, supervision and record-keeping from 1999 through 2001. The agency was focusing on whether Knight traded in front of client orders, thereby profiting at its customers' expense.

Knight said it reached an agreement, still subject to final approval, with the SEC and National Association of Securities Dealers, and said it won't have to admit to or deny findings. Under the agreement, its Knight Securities unit will give up $41 million in trading profits and $13 million in interest, and also pay $25 million in penalties, according to a statement released by the company.

"We believe that the agreement in principle is an important next step in closing the chapter on these issues," said Thomas M. Joyce, president and chief executive of Knight Trading.

The allegations arose in December 2001 as part of an arbitration claim filed with Nasdaq against the firm by former employee Robert Stellato, who had been the head of Knight's institutional trading desk.

Knight said the agreement doesn't address the private arbitration claim made by a former employee relating to his employment and termination, which the company disclosed in its filings for the quarter ending June 30, 2002. Knight said it continues to defend against that claim. The agreement also doesn't address the so-called Wells notices received by four of Knight's former employees. These notices are sent to firms and individuals to give them a chance to present a defense to regulators before disciplinary actions proceed.

Meanwhile, the profit warning from Knight is the latest sign that the stock-trading business took a hit in the second quarter. For the second quarter ended June 30, Knight expects to report earnings of between six cents and 11 cents a share, excluding items, compared with 15 cents a share a year earlier.

The projected results are far worse than what Wall Street had been expecting -- the average analyst estimate for second-quarter earnings recently was 15 cents a share. The company also didn't address its full-year earnings forecast. In April, Knight raised its full-year profit outlook to a range of 75 cents to 95 cents a share from a November estimate of 65 cents to 85 cents a share. Knight is expected to report second-quarter results on July 21.

Write to the Online Journal's editors at

6,362 posts
msg #32585
Ignore TheRumpledOne
7/15/2004 11:56:39 AM

You may want to visit our website at and click on litigations to research any actions filed by the Commission against Knight Trading Group. You may e-mail your comments to our Headquarters office in Washington D.C. at You may also visit to inquire about any public actions they may have against Knight Trading Group.

I hope this is helpful.

<name removed>
Investor Assistance Specialist
SEC - Denver

69 posts
msg #32746
Ignore robdavis
8/2/2004 7:41:38 PM

If your broker uses Knight -- and mine does -- watch out, and make some changes!

As we can see from the above story, the SEC and Knight agreed; yes, they made an important step, but -- regardless what Tom Joyce (Knight's president) says -- I don't think Knight closed the chapter on these issues.

Knight didn't deny the SEC's findings; what does this tell you? Also, Knight paid $41 + 13 + 25 = 79 million to the SEC, but Knight makes this much in a just couple of days! The volume they handle is unbelievable! I suspect Knight *bribes* a great many brokers to send all of their orders to Knight. Bribes are legal as of 2004; bribery in 2004 is known as "payment for order flow".

I suspect Knight *still* trades in front of client orders; and this includes your orders... and my orders, too! And therefore Knight profits at your expense and mine! In other words, they cheat. In other words, they defraud you and me, and lots of other customers! Knight certainly gives me me slow fills and poor fills, day after day, just about every single day!

Do you trade NASDAQ stocks? Does your broker *automatically* send your orders to Knight? Does your broker discourage you from making any choice, other than their standard "auto routing"? Well, then, in your own very best interest, you want to change your situation ASAP.

Possibility #1: If you can, take away Knight's discretion, and give them extremely tight limit orders. Or,...

Possibility #2: And this is a better one; if you can, take away your broker's discretion; for example, when you place your order, verify there's sufficient liquidity, and then make a choice and route your (NASDAQ) orders to Island/Inet (or some other honest ECN)!

You have more power than you think.

I hope this helps.

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